Europe eases, pricing in U.S. decline

Adidas lower as order backlog weakens

LONDON (CBS.MW) - European markets on Wednesday reflected weakness in U.S. stock market trading, with automakers and tech companies leading the decline.

The German DAX Xetra 30 index (1876534) eased 0.6 percent to 3,717 and the French CAC 40 index (1804546) dipped 0.9 percent to 3,393. London markets declined by a similar amount. See story on U.K. markets.

The October eurozone services PMI jumped to 56.0 in October from 53.6 in September, its largest reading since December 2000 and a figure ahead of expectations. The Reuters/NTC Research survey showed growth in Germany, France, Italy, Spain and Ireland, the five countries surveyed.

Fund manager: Bullish even if valuation not cheap

Ivo Vanpol, a European equity fund manager for KBC Asset Management in Brussels, said he is bullish on European equities over the next six months on expectations of an improving economy, improving earnings and higher bond yields in longer-term bonds.

"We don't think valuation is that cheap anymore, but you can't say that they are expensive. You can talk about some sectors that are fairly priced, but none where they are stretched," he said.

Vanpol says KBC is overweighting most growth sectors, with the exception of pharmaceuticals. Even discounting problems such as generic competition and patent expiration, the market still is not highly valuing pharmaceuticals at the moment. "Doubts have arisen if the pharma sector is still a growth sector," he said.

On the flip side, KBC also likes energy stocks despite their defensive characteristics, as improving economies around the world should help to boost demand, and rising Middle East tensions should help to limit supply.

Adidas backlog grows

Of companies in focus, apparel maker Adidas-Salomon (500340) eased 0.6 percent as it said its order backlog declined 8 percent from a year ago at the end of the third quarter, due to tough comparisons with the prior year and continued weakness in North America.

Adidas said third quarter net income rose 15 percent to 150 million euros, beating analyst expectations despite a 1 percent slide in revenues to 1.9 billion euros, which was the result of adverse foreign exchange movements. See story on Adidas.

The German rival to Nike
NKE, -0.01%
reiterated that revenues on a currency-neutral basis should grow 5 percent for the year, and earnings should grow 10-15 percent. Through nine months, sales rose 7 percent on a currency-neutral basis and earnings improved 17 percent.

Philips Electronics (00953)
PHG, +0.07%
fell 1.1 percent after saying it will take 250 million euros in restructuring charges in its consumer electronics division as part of plan for annual cost savings of 400 million euros by the end of 2005. Philips, which will update analysts later today on its consumer electronics and medical divisions, said it is on course to posting 14 percent EBITA growth in 2004 in its medical division.

French bank BNP Paribas (013110) dropped 1.3 percent after early gains, as AFX News reported that its chief executive has reiterated interest in making a U.S. acquisition.

The bank posted a 69 percent rise in net income to 970 million euros in the third quarter, ahead of expectations for an increase to in net profit of 738-814 million euros, according to an AFX poll of analysts. BNP said French Retail Banking "continued its steady growth" and that results in its International Retail Banking and Financial Services businesses "were up sharply despite the fall in the dollar."

Rumors of a profit warning at Commerzbank (803200), which the bank denied yesterday, continued to weigh on the stock, sending it 4.1 percent lower.

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